Acacia says tax evasion judgment deeply flawed

Advertisement

BRAD GORDON, CHIEF EXECUTIVE OFFICER OF ACACIA MINING PLC, SPEAKS DURING THE 20TH ANNUAL INVESTING IN AFRICAN MINING INDABA IN CAPE TOWN, SOUTH AFRICA.

• ACACIA Mining Plc (previously known as African Barrick Gold or ABG) has defended its tax record in Tanzania, saying the recent Tax Revenues Appeals Tribunal ruling which accused the gold mining giant of running a sophisticated tax evasion scheme in the country was “fundamentally flawed”.

"Acacia and its subsidiaries fully comply with all international and domestic tax legislation and have not and never will undertake any form of tax evasion or tax avoidance schemes," the company’s London-based management said in a statement yesterday.

"Acacia will be appealing against the ruling to the Court of Appeal," it added, asserting that the company’s financial reports conformed to international best practices and were audited by global accounting firms and government organisations.

The company said it has made a direct contribution of $372 million in taxes and mining royalty payments to Tanzania over the past three years.

Ambassador Juma Mwapachu, a non-executive member of Acacia Mining’s board of directors, also said in another statement yesterday that the tribunal’s ruling was not final because Acacia intends to appeal to a higher court.

“It is important to consider whether indeed dividends payable by a listed company are restricted to profits. Are they deemed to emanate, restrictedly, from business profits and thus attracting taxation? It is a debatable issue,” Mwapachu said.

“To question how a company is able to pay dividends when it is making losses sounds, with great respect, counter-intuitive,” he added.

Meanwhile, according to the tribunal’s findings, a small group of senior executives in London are calling the shots in Acacia Mining Plc despite the company's operations all being located in Tanzania, with top officials in Dar es Salaam occupying mainly ceremonial positions.

The management intricacies within the country’s biggest gold mining firm were exposed during tribunal hearings in Dar es Salaam into serious tax evasion allegations facing the company.

According to documents presented at the hearings, Deo Mwanyika, a top-ranking local official who was widely recognized as the person in charge of management of Acacia's business in Tanzania, is just a figurehead.

Mwanyika, who holds the title of group vice president of corporate affairs at Acacia Mining, told the tribunal that he has no real authority in how the company runs its affairs.

"While the (TRA) commissioner general insists that the office is headed by Mwanyika…the appellant (ABG/Acacia Mining) maintains that (his) title is merely ceremonial and that Mwanyika has no decision-making powers," the tribunal said in its ruling.

"He (Mwanyika) only carries out a coordination role and is an employee of Bulyanhulu Gold Mines Ltd, not ABG/Acacia. Furthermore, Mwanyika told the (Tax Revenue Appeals) Board that he is not paid any salary or allowances by ABG/Acacia," the ruling added.

The tribunal learnt that although Mwanyika has some 140 employees under him at Acacia's Dar es Salaam office, they only assist him in the "coordination role."

Acacia operates three gold-producing mines in northwestern Tanzania - Bulyanhulu, North Mara and Buzwagi.

According to the tribunal ruling: "Mwanyika told the board that all three Tanzanian companies (Bulyanhulu, North Mara and Buzwagi) have been making losses and have never declared any dividends."

But an investigation by the Tanzania Revenue Authority (TRA) established that Acacia Mining had actually been making big profits from all three mines and used some of the profit to ‘secretly’ pay dividends to its shareholders in London over the past four years.

In the meantime, the company has been falsely posting consecutive losses in its Tanzanian operations, hence dodging payments of corporation and withholding tax to TRA.

Mwanyika did not give the tribunal any details of Acacia's finances, saying such details could only be given by the company's UK offices.

Acacia Mining's London corporate office is headed by the company's chief executive officer (CEO), Brad Gordon, who is assisted by a small team of executives.

The London office in turn answers to the company's majority shareholder, the Canadian-based Barrick Gold Corporation.

Acacia claimed that it was not a resident company in Tanzania for tax purposes because its headquarters were in London, despite the fact that all its mining operations were conducted in Tanzania.

TRA maintained that the fact that ABG (later renamed to Acacia) was declaring and paying dividends to its shareholders while its Tanzanian businesses were declaring losses was "merely a scheme to enable it to evade tax."

Investigations by TRA established that Acacia Mining paid over $412.5 million (901bn/-) dividends to its shareholders from 2010 to 2013 alone. The taxman hence ordered Acacia to pay 10 per cent of that (over $41.25m, or 90bn/-) as withholding tax.

TRA also instructed the company to register for income tax and value added tax (VAT) as a resident company in Tanzania. Acacia however objected to these instructions - which were upheld by a decision of the Tax Revenue Appeals Board of May 2011 - and filed an appeal.

The Tax Revenue Appeals Tribunal dismissed Acacia's appeal in its March 31, 2016 ruling delivered by tribunal chairman Judge Fauz Twaib, who sided with the board’s ruling and ordered the company to pay the withholding tax due to TRA plus an unspecified amount of corporation tax.

Judge Twaib also accused Acacia Mining of running an elaborate tax evasion scheme that allowed it to dodge Tanzanian government taxes for years.

“The fact that none of ABG’s (Acacia) subsidiaries is declaring any profit that could provide its holding company with such huge net profits sufficient to distribute to its shareholders four years in a row is what in our respectful opinion constitutes the evidence of a sophisticated scheme of tax evasion,” said Judge Twaib in his ruling.

Local mining companies have long been suspected of being tax cheats, causing the government to get less than its fair share of revenues from the sector.

Some members of parliament have in the past questioned why Acacia Mining lists London as its headquarters instead of Dar es Salaam while all its income is exclusively derived from its gold mining operations in Tanzania.

Acacia Mining’s communications manager, Nector Foya, confirmed to The Guardian in Dar es Salaam yesterday that the company planned to appeal against the tribunal ruling.

“Acacia fully complies with all international and domestic tax legislation, and pays taxes when and where they fall due,” Foya said, adding that the company recently agreed to pre-pay $20 million of corporate tax to demonstrate its commitment to Tanzania.

She said last year alone, Acacia paid $109 million to Tanzania as taxes and royalties from its mining operations.

On his part, TRA commissioner general Alphayo Kidata told The Guardian that the authority planned to enforce the tribunal ruling and collect the outstanding withholding tax from Acacia Mining.

“Justice has been served … there is no doubt that the tax will be collected from Acacia since this company conducts its business in the country through three subsidiary companies,” Kidata said.

“These mineral resources belong to the people of Tanzania … taxes collected from the mining sector could help our nation to improve social services,” he added.

The TRA boss said although Acacia has a legal right to appeal against the tribunal judgment, the revenue authority will still collect the tax after all legal procedures have been concluded.

He insisted that Tanzania cannot afford to repeat past mistakes and miss out on its fair share of taxes from the mining sector.

Kidata also said TRA will seek to ensure that all multinational companies like Acacia pay due taxes in Tanzania when they transfer funds out of the country.

By Victor Karega

The Guardian

Share This